Taiwan's pensioners cry foul as reforms loom

President Tsai Ing-wen with naval officials. Taiwan's military personnel are covered by the public service pension fund, which provides pensions of up to 100 per cent of last-drawn salary.
President Tsai Ing-wen with naval officials. Taiwan's military personnel are covered by the public service pension fund, which provides pensions of up to 100 per cent of last-drawn salary.PHOTO: REUTERS

Govt says generous payouts are no longer affordable, but retirees feel hard done by

Retired teachers, civil servants and military personnel are up in arms over the Taiwanese government's pension reform plans that will cut generous payments which analysts and reformers say are becoming a huge burden on the economy.

In Taiwan, retired military personnel, teachers and civil servants are drawing pensions equivalent to up to 90 per cent to 100 per cent of their last-drawn salary before retirement.

For senior officials, this can amount to NT$80,000 (S$3,400) - nearly four times the starting salary of many university graduates.

Globally, the desired ratio is around 70 per cent. In Singapore, based on the Central Provident Fund alone, it is about 60 per cent to 70 per cent.

Taiwan's large pensions were affordable when its economy was growing at an average of 7.6 per cent in the 1990s and 4.5 per cent in the early 2000s, and when the population was relatively young with a large proportion in the workforce.

But with a rapidly ageing population and a low fertility rate - 12.5 per cent of the population are older than 65 - and as the economy slows, with growth for this year forecast at 0.77 per cent, the burden of such generous pension schemes is being felt acutely.

  • Three major govt pension funds

  • PUBLIC SERVICE PENSION FUND

    • Who: Civil servants, teachers and military personnel

    •How many: More than 600,000

    •Monthly contribution: 12 per cent of monthly salary, divided between employees, employers and the government

    •Monthly payout: Between NT$50,000 and NT$60,000 (S$2,540). Senior officials can get up to NT$80,000

    •Income replacement ratio: 80 to 100 per cent

    •Drawdown age: 45 for military personnel; 54 for civil servants and teachers

  • LABOUR PENSION FUND

    •Who: Workers in the private sector

    •How many: 10 million

    •Monthly contribution: 9 per cent of monthly salary, divided among employees, employers and the government. For the self-employed, contributions are paid by individuals and the government

    •Monthly payout: Between NT$10,000 and NT$20,000

    •Income replacement ratio: 40 to 60 per cent.

    •Drawdown age: 60.

  • NATIONAL PENSION FUND

    •Who: Low-income earners, people with disabilities and the unemployed

    •How many: Four million

    •Monthly contribution: 8 per cent of monthly salary or allowance, divided between individuals and the government

    •Monthly payout: About NT$7,000

    •Drawdown age: 65

Indeed, the public service pension fund, for teachers, civil servants and military personnel, is reported to have been in deficit since last year.

President Tsai Ing-wen, at her inauguration in May, made reform of the pension system a priority, saying the need for action was so urgent that if not done now, Taiwanese "will regret it at once".

She set up a 37-member committee to come up with proposals within a year.

Hers will be the third attempt at pension reform, after that of president Chen Shui-bian, who was in office from 2000 to 2008, and president Ma Ying-jeou (2008-2016).

Taiwan currently has several pension schemes, each with its own contribution and drawdown formulas and ages at which participants can start drawing on it.

Ms Tsai has said that the committee will look at all possibilities for reform of the different schemes.

The head of the committee, Minister without Portfolio Lin Wan-i, has said the most important areas of reform are increasing contributions to the funds and reducing the income replacement ratio, or the retirement income as a proportion of an individual's last-drawn pay.

Dr Lin, who was also involved in the pension reform efforts of Mr Chen in 2007, wants to raise the age at which people can start drawing pensions, or the drawdown age, in the face of rising life expectancies.

Dr Lin told The Straits Times: "With fewer people entering the workforce and more people collecting pensions, we simply cannot afford to let them do so for so long."

Taiwan spends NT$301 billion annually on pension schemes, accounting for 16.95 per cent of its NT$1.77 trillion budget, according to the Ministry of Finance.

The reformers, however, will be hard put to find a balance between reducing the burden on younger generations of Taiwanese and making the changes acceptable to those who will face cuts in their pensions.

Already, unhappiness is emerging among teachers, civil servants and military personnel.

"We made sacrifices to serve Taiwan, but the first thing the government seems to want to do is cut our pensions without properly engaging us," said National Civil Servant Association chairman Harry Lee Lai-hsi, one of the most vocal critics of the reform panel.

"How is that justified and why must we be the first people on the chopping block?"

On the other hand, young people such as cafe assistant Max Su, 32, who earns NT$30,000 a month, want reforms that will be fair to them.

"We work hard too but barely have enough to get by, while these civil servants are sitting on a big retirement kitty. How is that fair?"

Tensions are likely to boil over on Sept 3 when retired teachers, military personnel and civil servants intend to take their frustrations to the streets to protest against pension cuts.

Still, National Taiwan University sociology professor James Hsueh, who led Mr Ma's failed pension reform efforts in 2013, thinks the Tsai administration has a good chance of pushing through its reforms.

"People always complain about paying more but getting less. But Ms Tsai's advantage is her DPP's (Democratic Progressive Party) majority in the legislature, which will make things a lot easier," he said.

A version of this article appeared in the print edition of The Straits Times on July 30, 2016, with the headline 'Taiwan's pensioners cry foul as reforms loom'. Print Edition | Subscribe